National Western Life Insurance Company v. Ella Mae Rowe, Individually and on Behalf of All Others Similarly Situated

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-01-00396-CV

National Western Life Insurance Company , Appellant

v.

Ella Mae Rowe, Individually And On Behalf Of All Others Similarly Situated , Appellee

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 345TH JUDICIAL DISTRICT

NO. GN000704, HONORABLE PAUL DAVIS, JUDGE PRESIDING

National Western Life Insurance Co. ("National") brings this interlocutory appeal

challenging the trial court's order certifying a class action. See Tex. Civ. Prac. & Rem. Code Ann.

§ 51.014 (a)(3) (West Supp. 2002). National contends that the trial court abused its discretion in

certifying the class because the appellee, Ella Mae Rowe, failed to satisfy certain requirements for

class certification under rule 42 of the Texas Rules of Civil Procedure. We will affirm the trial

court's order certifying the class.

BACKGROUND

This case concerns child riders to life insurance policies sold by National. National

began selling child riders in 1965. Rowe purchased her life insurance policy with a child rider from

National in 1977. Since National began selling these riders, the forms of the child riders have been

altered. (1) However, all forms of the rider that lie at the center of this controversy contain substantially

similar language. Each rider provides for a $1,000 benefit to be paid upon the death of a child prior

to termination of coverage for that child at age twenty-five. The rider defines "child" as follows:

"Child" as used in this rider means (1) each of the Insured's children who is named

in the application for this rider, who is at least 15 days old, and who at the date of

application is not yet 18 years old, and (2) each child born to or legally adopted by

the Insured and Insured's spouse after the date of application for this rider, who

becomes 15 days old and who at the date of adoption is not yet 18 years old.

National does not maintain records of the insured's children and does not require notice upon the

birth or adoption of additional children after the child rider is purchased. National simply promises

to provide the $1,000 benefit upon receipt of "due proof of death of a child."

The rider also contains the following language concerning termination of coverage:

Insurance on a Child stops on the rider anniversary when the Child is 25 years old

unless it stops earlier in accordance with this section.

Premiums are not due for this rider after it has stopped. If we accept a premium after

termination it does not mean that we are liable for benefits under this rider or that we

waive the termination. We will refund any premiums so accepted.

National drafted these riders so that coverage terminates once the policyholder's children have

reached twenty-five years of age. However, because National recognized that it may continue to

receive rider premiums after coverage terminates, the rider disclaims liability for benefits if

premiums are received and accepted after coverage terminates. Although the rider promises a refund

of premiums so accepted, National has not offered to refund the premiums collected from unnamed

class members that were remitted after coverage terminated. (2) It is National's failure to refund

premiums paid after a child turns twenty-five that forms the basis for this class action litigation.

The termination language in the rider lies at the heart of this dispute. Rowe alleges

that National has wrongfully continued to collect premiums for riders under which the coverage has

terminated. Policyholders do not receive a copy of the rider until after the first premium payment

is received by National. Therefore, policyholders have already initiated payment for the rider before

having the opportunity to review the contractual language to which they have agreed. Furthermore,

Rowe claims that National designed that language to place an affirmative duty on the policyholder

to recognize when the rider has expired. Rowe claims that National designed the riders in this

manner with an understanding that individuals would not recognize the nuances of this language, and

thus, would likely continue to pay premiums for riders that had terminated.

Additionally, Rowe argues that National is in the best position to monitor its

policyholders' rider coverage and should assume the obligation of notifying policyholders if they

remit premiums that are no longer due. Rowe further contends that National's billing policies

confuse policyholders and manipulate them into paying for terminated riders, in that National

submits premium invoices to policyholders that fail to segregate the two premiums, one for the

underlying policy and one for the rider. National concedes that on policies that are in effect for ten

or twenty years, policyholders may forget that their premiums include payments for the rider. Rowe

argues that National should notify its policyholders about the status and charges concerning the

riders. Therefore, Rowe filed suit in March 2000 asserting claims against National for breach of

contract, fraud, negligent misrepresentation, unjust enrichment, and violations of the Deceptive

Trade Practices-Consumer Protection Act and article 21.21 of the Texas Insurance Code. See Tex.

Bus. & Com. Code Ann. § 17.41 (West 2002); Tex. Ins. Code Ann. art. 21.21 (West Supp. 2002).

National responds that it should not be responsible for notifying policyholders when

coverage terminates on the rider because National has no way of knowing the ages of children

covered by the rider. National does not maintain records of the names and ages of its policyholders'

children. Nor does National require notice if additional children come under the rider's umbrella

of coverage. Because National does not maintain such records, National claims that it cannot be

expected to know the number or ages of covered children. National's second defense to Rowe's

allegations is that the riders are designed to provide continuing coverage regardless of whether

policyholders have children under twenty-five when premiums are paid. National argues that some

policyholders choose to continue paying for the rider to ensure that any after-born or after-adopted

children are covered. National asserts, inter alia , that the class certification is improper because the

trial court ignored National's argument based on this continuing benefit.

National raises eight issues in its appeal. In its first issue, National attacks the trial

plan on grounds that it relies on a flawed claim form procedure and it eliminates or lowers Rowe's

burden of proof concerning reliance and National's statute of limitations defense. In its fifth and

sixth issues, National also challenges the trial plan as arbitrarily placing Rowe's breach of contract

claims ahead of the remaining tort claims and failing to consider a section of the insurance code. See

Tex. Ins. Code Ann. § 36.159 (c) (West 2002) (governing Texas Department of Insurance subpoena

powers and duty to protect confidentiality of privileged records). National's second issue challenges

the trial court's finding that the class met the commonality requirement of rule 42(a)(2). Issues three

and four challenge the trial court's determination that Texas law governs all the claims of the class.

By its seventh issue, National asserts that the trial court abused its discretion in admitting expert

testimony in the certification hearing without properly examining it for relevance and reliability.

Finally, National's eighth issue challenges the trial court's order requiring National to bear a portion

of the discovery costs in this case.

STANDARD OF REVIEW

In a class action, the trial court is charged with the duty of actively policing the

proceedings and guarding the class interests. See General Motors Corp. v. Bloyed , 916 S.W.2d 949 ,

954 (Tex. 1995) (discussing extraordinary nature of class action litigation, protections required for

absent class members, and trial court's departure from ordinarily detached role assumed in most

other proceedings). Therefore, the trial court is afforded broad discretion in defining the class and

determining whether to grant or deny a class certification. See Intratex Gas Co. v. Beeson , 22

S.W.3d 398, 406 (Tex. 2000). On appeal, our review is strictly limited to determining whether the

trial court abused its discretion in ordering class certification. See Tana Oil & Gas Corp. v. Bates ,

978 S.W.2d 735, 740 (Tex. App.--Austin 1998, no pet.); Vinson v. Texas Commerce Bank-Houston,

N.A. , 880 S.W.2d 820, 823 (Tex. App.--Dallas 1994, no writ). An appellate court must not

substitute its judgment for that of the trial court. Tana Oil , 978 S.W.2d at 740 . Even if a trial court

determines an issue differently than would an appellate court, the ruling does not necessarily

constitute an abuse of discretion. Downer v. Aquamarine Operators, Inc. , 701 S.W.2d 238, 242

(Tex. 1985); see also Vinson , 880 S.W.2d at 824 . In determining whether a matter should be

litigated as a class action, a trial court abuses its discretion if its decision is arbitrary, unreasonable,

or without reference to any guiding principles. Tana Oil , 978 S.W.2d at 740 . Further, a trial court

abuses its discretion if it does not properly apply the law to the undisputed facts, but does not abuse

its discretion if it bases its decision on conflicting evidence. Id. ; Vinson , 880 S.W.2d at 823 .

In making its class certification decision, the trial court can consider the pleadings

and other material in the record, along with the evidence presented at the hearing. Employers Cas.

Co. v. Texas Ass'n of Sch. Bds. Workers' Comp. Self-Ins. Fund , 886 S.W.2d 470, 474 (Tex.

App.--Austin 1994, writ dism'd w.o.j.). The evidence on which a trial court bases its certification

ruling need not be in a form necessary to be admissible at trial. See Texas Commerce Bank Nat'l

Ass'n v. Wood , 994 S.W.2d 796, 801 (Tex. App.--Corpus Christi 1999, pet. dism'd w.o.j.);

Microsoft Corp. v. Manning , 914 S.W.2d 602, 615 (Tex. App.--Texarkana 1995, writ dism'd). We

view the evidence in the light most favorable to the trial court's action, entertaining every

presumption that favors its judgment. Vinson , 880 S.W.2d at 823 ; see also Brittian v. General Tel.

Co. , 533 S.W.2d 886, 889 (Tex. Civ. App.--Fort Worth 1976, writ dism'd) (citing Richardson v.

Kelly , 191 S.W.2d 857 (Tex. 1945)). After such a review, we will reverse a district court's decision

to certify a class only upon a showing that the court abused its discretion in light of the evidence

presented in the certification hearing, or that it applied incorrect legal standards in reaching its

decision. See Mullen v. Treasure Chest Casino, LLC , 186 F.3d 620, 624 (5th Cir. 1999) (citing

Forbush v. J.C. Penney Co. , 994 F.2d 1101, 1104-05 (5th Cir. 1993); Jenkins v. Raymark Indus. , 782

F.2d 468, 471-72 (5th Cir. 1986)).

In conducting the initial evidentiary review, the trial court must conduct a rigorous

analysis to determine whether all prerequisites have been met before ruling on class certification.

Southwestern Ref. Co., Inc. v. Bernal, 22 S.W.3d 425, 435 (Tex. 2000). Noting that courts, prior to

its decision in Bernal , were certifying class actions without conducting the proper analysis into each

requirement of rule 42, notably section (b)(4) of the rule, the Texas Supreme Court expressly rejected

an "approach of certify now and worry later." Id. While some have incorrectly interpreted the

supreme court's language as establishing a de novo standard of review for class certification, we are

mindful of the remainder of the court's discussion. Bernal clearly instructs that the trial court

continues to enjoy discretion in making a class certification decision. However, the trial court must

adhere to the rule's requirements.

Although it may not be an abuse of discretion to certify a class that could later fail,

we conclude that a cautious approach to class certification is essential. The

"flexibility" of Rule 42 "enhances the usefulness of the class-action device, [but]

actual, not presumed, conformance with [the Rule] remains . . . indispensable."

Falcon , 457 U.S. at 160. As the Supreme Court stressed in Amchem : "Courts must

be mindful that the rule as now composed sets the requirements they are bound to

enforce. . . . The text of a rule . . . limits judicial inventiveness." Amchem Prods.

Inc. , 521 U.S. at 620; see also General Motors Corp. v. Bloyed , 916 S.W.2d 949, 954

(Tex. 1996) (emphasizing "the importance of the trial court's obligation to determine

that the protective requirements of Texas Rule 42 are met").

Bernal , 22 S.W.3d at 435 . Our commitment to stare decisis concerning the standard of review in

class action certification cases must recognize the concerns created by the class action landscape

before Bernal while maintaining a grasp on the rationale behind that standard and the reasons for the

"flexibility of rule 42." See Tex. R. Civ. P. 42(c)(1) (trial court may alter, amend, or withdraw class

certification order at any time before final judgment). Rule 42(c)(1) provides the trial court with the

tools needed to respond to changes in the case's development. Intratex , 22 S.W.3d at 407 (appellate

court must remand when it identifies definitional problem in class certification order because

prescribing proper definition is committed to trial court's discretion).

Our review of the record in this case supports our conclusion that the trial court did

not abuse its discretion in certifying the class. The trial court conducted a thorough certification

hearing in which it went beyond the parties' pleadings in order to examine the claims, defenses,

relevant facts, and applicable substantive law of this case in order to make a meaningful

determination of the certification issues. The record before us indicates that the trial court conducted

a rigorous analysis of all issues presented and arrived at a cautious decision in certifying the class.

The clerk's record, combined with the first, second, and third supplemental clerk's records, consists

of approximately 2,800 pages of pleadings and documentary evidence. Additionally, the record

contains a multiple volume reporter's record. At the certification hearing, Rowe presented one

witness, deposition excerpts from five witnesses, four affidavits from both expert and non-expert

witnesses, as well as discovery responses and other documentary evidence. National followed by

presenting three live witnesses, four affidavits, its expert witness's report, portions of a deposition,

and additional documentary evidence. At the conclusion of the certification process, the trial court

decided to certify the class. The extensive and detailed certification order, findings of fact, and

conclusions of law demonstrate that the trial court conducted a rigorous review of the information

presented and determined that this case met the Bernal test of actual, rather than merely presumed,

compliance with the requirements of rule 42. We are convinced that the trial court made an

informed, cautious, and proper decision that common issues predominated over individual issues,

and that all issues in this case could be considered in a manageable, time-efficient, and fair manner.

Finally, we must not lose sight of the fact that class action certification is a trial court

decision made at the very inception of the litigation process. One of the reasons we accord the abuse

of discretion standard to the trial court is that such issues as trial plan, the management of the

discovery process, and a litany of other factors of necessity will have only been determined as a

preliminary matter when class certification is addressed by the trial court. During the course and

development of a class action, trial courts may need to alter, amend, or modify the original class

certification order. See, e.g. , De Los Santos v. Occidental Chem. Corp. , 933 S.W.2d 493, 494 (Tex.

1996) (certification of class originally granted as mandatory class, changed to opt-in class during

pretrial discovery period, and returned to mandatory class after initial phase of trial); Wood v.

Victoria Bank & Trust Co., N.A. , 69 S.W.3d 235, 237 (Tex. App.--Corpus Christi 2001, no pet.)

(holding trial court acted within its discretion in decertifying class); Nissan Motor Co., Ltd. v. Fry ,

27 S.W.3d 573, 589 (Tex. App.--Corpus Christi 2000, pet. denied) (remanding to trial court to

determine whether establishment of sub-classes can cure definitional problem in original certification

order); Pierce Mortuary Colls., Inc. v. Bjerke , 841 S.W.2d 878, 879 (Tex. App.--Dallas 1992, writ

denied) (trial court amended certification order, expanding class to include additional group of

individuals and adding two years to time period in which injury could have occurred). Cases such

as these demonstrate how the management of class actions can warrant changes to the original

certification order and why appellate courts must employ an abuse of discretion standard in ruling

on challenges to the granting or denial of class certification. Indeed, the whole process of class

action certification presupposes the changing nature of the litigation process and gives the trial court

ample authority to shape the litigation.

REQUIREMENTS OF CLASS CERTIFICATION

Rule 42, governing class actions, is patterned after its federal counterpart.

Consequently, federal decisions and authorities interpreting current federal class action requirements

are persuasive authority. Bernal, 22 S.W.3d at 433 . The class action serves as a mechanism to

eliminate or reduce the threat of repetitive litigation, prevent inconsistent resolution of similar cases,

and provide a means of redress for individual claims that are too small to make independent actions

economically viable. See Ford Motor Co. v. Sheldon , 22 S.W.3d 444, 452 (Tex. 2000). The

principal purpose of the class action device is efficiency and economy of litigation. See id.

(discussing origins and general design of class action device). Thus, when properly used, a class

action saves the court's and the parties' resources by allowing class-wide issues to be tried in an

economical fashion. See id. at 452 (citing General Tel. Co. v. Falcon , 457 U.S. 147, 155 (1981)).

All class actions must satisfy the following four threshold requirements: (1)

numerosity--the class is so numerous that joinder of all members is impracticable, (2)

commonality--there are questions of law or fact common to the class, (3) typicality--the claims or

defenses of the representative parties are typical of the claims or defenses of the class, and (4)

adequacy of representation--the representative parties will fairly and adequately protect the interests

of the class. See Tex. R. Civ. P. 42(a); Bernal , 22 S.W.3d at 433 . In addition to these prerequisites,

class actions must satisfy at least one of four subdivisions of rule 42(b). Here, the trial court found

that Rowe established that this class action satisfies rule 42(b)(4), which requires questions of law

or fact common to the class to predominate over questions affecting only individual members and

that class treatment be superior to other available methods for the fair and efficient adjudication of

the controversy. Tex. R. Civ. P. 42(b)(4); see also Amchem Prods., Inc. v. Windsor , 521 U.S. 591,

615 (1997); Bernal , 22 S.W.3d at 433 .

DISCUSSION

Trial Plan

National challenges the trial court's order granting class certification on the grounds

that the requirements of rule 42 have not been satisfied. National's most significant challenge

attacks the trial court's proposed trial plan. The trial plan specifies that the class in this case will be

an opt-out class. Also, in order to determine which class members had after-born or after-adopted

children, the trial court intends to attach a Proof of Additional Children form to the notice sent to all

class members. This form will be filled out and returned by the class members. Class members who

have additional children who are still under twenty-five years of age may, by this process, exclude

themselves from the class.

Furthermore, the notice will provide an opportunity to verify whether there is a way

to know the ages of children listed on a policyholder's application and which child rider form

number applies to each class member without requiring a manual review of National's files. But if

a manual review is required, then National must pay the expenses of conducting the review and

preparing the results. The court found this allocation of expenses fair in light of the fact that Rowe's

counsel is mailing out the notice and Proof of Additional Children forms at its expense.

The trial plan also addresses various discovery needs. The notice and Proof of

Additional Children forms will ask class members whether they have had after-born or after-adopted

children since the rider was purchased. Because National has indicated that it may want to depose

or otherwise obtain discovery from every class member, the trial plan states that an adequate time

for such discovery will be allowed, but that the trial court may streamline the discovery to ensure that

it is not overly burdensome. The trial court also explains that it will entertain a no-evidence motion

for summary judgment as to all class members where no evidence has been obtained of after-born

or after-adopted children. If Rowe carries the burden of proof on this issue, the trial plan calls for

proof of claim forms to be issued during the damages phase of the trial. Those class members with

children under twenty-five years of age would then be allowed to exclude themselves from the class.

The trial plan also calls for a single jury to try this case in two phases. The first phase

will determine liability and damages. The court anticipates that most of the damages calculation will

be presented through expert testimony and that the jury could, after hearing such evidence, decide

any disputes about whether a class member did in fact have after-born or after-adopted children.

However, the trial plan anticipates that this issue may be decided either by stipulation or by partial

summary judgment. The second phase would address punitive damages if the jury verdict from the

first phase justifies such a submission. After the trial, the court will hold a hearing on the entry of

judgment which would allocate any undivided damages awards to the class members. Finally, the

trial plan addresses National's statute of limitations defense and finds that a trial of that issue would

be manageable and that the submission of a fraudulent concealment and a discovery rule question

to the jury would allow relief to be awarded only to those class members who fall within the statute

of limitations.

National claims that the trial plan's attempt to expedite the resolution of individual

issues alters the parties' burdens, deprives National of the ability to attack Rowe's case, and unduly

restricts it from presenting viable defenses. See Bernal , 22 S.W.3d at 435 . National's most vocal

objection to the plan focuses on the Proof of Additional Children form procedure. National believes

that the trial court, through the use of the Proof of Additional Children form, has created a

presumption favoring the class. This alleged presumption, National contends, shifts the burden of

proving the absence of after-born or after-adopted away from the individual class members and

towards National. National contends that the trial plan allows for a class member to prove damages

merely by remaining silent about whether additional children exist. National carries its argument

to a conclusion that this presumption will adversely affect National in a final damages calculation.

However, National's argument ignores both the preliminary nature of this trial plan

as well as the uncertainty surrounding the development of the litigation. The trial plan does not say

that the Proof of Additional Children forms or the evidence obtained from them will be admissible

at trial. The only clear inference that can be drawn from the trial plan is that the Proof of Additional

Children forms serve as the initial discovery tool employed by the trial court. In fact, the trial court

anticipated that the forms might not be returned or that further information might be needed in order

for National to present a defense. Therefore, the court specifically referenced the possible need for

additional discovery, albeit in a streamlined manner due to the numerosity of the class, in order to

obtain information favorable to National's defense. Thus, the trial plan anticipates the need to

provide National the opportunity to develop its defense based on the fact that certain individuals may

have continued paying premiums in reliance on National's promise to preserve coverage for

additional children. Accordingly, we conclude that the trial plan does not preclude National from

developing its defense. The discovery methods outlined in the trial plan protect each party's

opportunity to adequately and vigorously present any material claims and defenses. Bernal , 22

S.W.3d at 437 .

National next attacks the trial plan on the issue of reliance. Focusing on Rowe's

allegations concerning the DTPA, the insurance code, fraud, and negligent misrepresentation,

National argues that the trial court has eliminated Rowe's burden of proving reliance. However, we

note initially that the trial court began its focus with the breach of contract claims that apply

uniformly to all class members. Reliance is not required to prove a breach of contract. See Wright

v. Christian & Smith , 950 S.W.2d 411, 412 (Tex. App.--Houston [1st Dist.] 1997, no pet.) ("The

elements of a breach of contract claim are: (1) the existence of a valid contract; (2) performance or

tendered performance by the plaintiff; (3) breach of the contract by the defendant; and (4) damages

to the plaintiff resulting from that breach.").

As to the non-contract claims alleged in Rowe's petition, the trial court has not

eliminated reliance from consideration in this case. The trial court's order states that the presumed

direction of the trial on these non-contract claims will focus on the uniform conduct of National, its

billing policies, and its failure to refund any premiums paid for terminated riders. The trial court also

determined that some claims do not require a showing of reliance. If various class members have

actually had or planned to have additional children after their youngest child attained twenty-five

years of age, reliance becomes a substantive issue only for those discrete claims. The discovery tools

employed in this case will determine whether reliance is a substantial issue, but until the end of the

discovery period, the trial court's discretion should not be disturbed merely on the speculation that

a specific issue might arise that could be detrimental to a portion of the class. We recognize that the

trial court may decertify or reshape the class to address issues such as reliance. See Tex. R. Civ. P.

42(c)(1).

National's next challenge to the trial plan concerns its statute of limitations defense.

The applicable statute of limitations in this case is two years for the tort causes of action and four

years for the breach of contract claims. Tex. Civ. Prac. & Rem. Code Ann. §§ 16.003 , .051 (West

1997 & Supp. 2002). To survive the limitations defense, Rowe has pleaded both the discovery rule

and fraudulent concealment. The discovery rule operates to defer accrual of a cause of action until

the plaintiff knows or, by exercising reasonable diligence, should know of the facts giving rise to the

claim. Wagner & Brown, Ltd. v. Horwood , 58 S.W.3d 732, 734 (Tex. 2001). A plaintiff may rely

on the discovery rule only when the nature of the injury is both inherently undiscoverable and

objectively verifiable. Id . Fraudulent concealment estops the defendant from relying on the statute

of limitations as an affirmative defense. Computer Assocs. Int'l, Inc. v. Altai, Inc. , 918 S.W.2d 453,

456 (Tex. 1996). Whether a plaintiff knew or should have known of an injury is generally a question

of fact for the jury. Houston Endowment Inc. v. Atlantic Richfield Co. , 972 S.W.2d 156, 160 (Tex.

App.--Houston [14th Dist.] 1998, no writ). National correctly asserts that the discovery rule and

fraudulent concealment may require proof of each individual class member's subjective knowledge

concerning discovery of the injury alleged. However, National misinterprets the trial court's plan

for determining this issue.

The trial plan proposes to submit a question to the jury on fraudulent concealment and

the discovery rule so that the jury may determine when a reasonable policyholder had met the test

for either means of overcoming National's limitations defense. National reads this proposal as

lowering Rowe's burden from showing each class member's subjective knowledge to simply

showing when a reasonable person should have known. National's interpretation incorrectly

assumes that the jury will decide whether class members may overcome the limitations defense. The

trial plan merely proposes to have the jury try these discrete issues and determine a date or time when

the injuries became discoverable. The trial plan clearly states that this proposed course can

effectively manage this issue because Rowe proposes to try this issue based on theories of breach

of contract and National's uniform conduct in designing the riders, failing to refund payments, and

continuing to bill for expired riders. Therefore, we conclude that at this preliminary stage, the trial

court has not lowered Rowe's burden. The trial plan anticipates that the discovery process will

produce information from each class member regarding when that person first had sufficient

knowledge of the injuries alleged in this lawsuit. The trial court may then apply the discovery results

to the jury's finding and determine which class members' claims fail as a result of limitations. Thus,

the trial plan proposes a way to manage the trial of this issue and does not lower Rowe's burden in

overcoming National's affirmative defense.

National's final two challenges to the trial plan also fail to persuade us that the trial

court abused its discretion. Without providing any authority, National claims that the trial court

erred in determining that the breach of contract claim was the primary claim asserted by Rowe. The

trial court has discretion in managing this litigation. Tex R. Civ. P. 42(c)(1). The trial court's

characterization of its preliminary determinations concerning the management of this case cannot

be said to have amounted to an abuse of discretion. National's final attack on the trial plan relies on

Texas Insurance Code section 36.159(c). This section of the code deals with the general subpoena

powers of the Texas Department of Insurance and does not have any effect on the parties to this

litigation. Having dismissed these final two issues, and having determined that the trial court did

not abuse its discretion in devising the trial plan for this case, we overrule National's first, second,

fifth, and sixth issues.

Commonality

Although National phrases its second issue as challenging the trial court's

determination that common issues predominated over individual issues, it fails to brief an argument

relating to the rule's predominance requirement. See Tex. R. Civ. P. 42(b)(4). Therefore, National

appears to have waived any challenge to the predominance requirement. See Tex. R. App. P.

38.1(h). However, because National properly raises a challenge to the trial court's finding of

commonality, we will address both commonality and predominance as a single issue.

Rule 42(a)(2) does not require that all or even a substantial portion of the legal and

factual questions be common to the class. Nissan Motor Co. v. Fry , 27 S.W.3d at 588 . It requires

only that some legal or factual questions be common to the class. Rainbow Group, Ltd. v. Johnson ,

990 S.W.2d 351, 358 (Tex. App.--Austin 1999, pet. dism'd w.o.j.). The commonality requirement

means that an issue of law or fact exists that inheres in the complaints of all the class members.

Entex v. City of Pearland , 990 S.W.2d 904, 919 (Tex. App.--Houston [14th Dist.] 1999, no pet.).

Questions common to the class are those which, when answered as to one class member, are

answered as to all class members. Nissan Motor Co. , 27 S.W.3d at 588 . The common issues may

be those of law or fact; there need not be common issues of both law and fact, and a single common

question may provide sufficient grounds for class certification. Id . The commonality requirement

is generally considered satisfied where (1) many members of the class are subject to the same

misrepresentation or omissions by reason of common documents, or (2) the defendant is alleged to

have engaged in a common course of conduct. Rio Grande Valley Gas Co. v. City of Pharr , 962

S.W.2d 631, 643 (Tex. App.--Corpus Christi 1997, pet. dism'd w.o.j.).

The trial court found that Rowe had established commonality because each child rider

contains substantially similar language in the termination clauses and the claims of the class focus

largely on this language. (3) Rowe further established commonality by demonstrating that the class will

try the case based on the uniform breach, or anticipatory breach, of contract based on National's

design and implementation of the riders. Additionally, the trial court found that National's uniform

conduct in billing and collecting premiums on these riders created common issues with regard to

Rowe's tort claims. Finally, the trial court summarized its commonality determination into four

questions focusing on (1) whether the riders are ambiguous, (2) whether National's uniform conduct

amounted to a breach of the rider contracts, (3) whether National engaged in tortious conduct by its

uniform billing policy and failure to refund premiums paid after termination, and (4) whether the

class is entitled to a constructive trust because of National's conduct.

National challenges the trial court's findings as being "too general to satisfy the

commonality requirement because each simply restates the causes of action." In support of this

proposition, National cites Kelley v. Galveston Autoplex , 196 F.R.D. 471, 475 (S.D. Tex. 2000). (4)

However, in Kelley , the federal district court did not find commonality because the alleged violations

took many different forms. The court indicated that in order for certification to be proper, the

contracts in issue would have had to be "a single type of contract that is virtually, if not completely,

identical in each transaction." Id . (quoting Durrett v. John Deere Co. , 150 F.R.D. 555, 557 (N.D.

Tex. 1993)). Here, each class member entered into an agreement for insurance coverage using

virtually identical contracts issued by National. Furthermore, National's alleged tortious conduct

was uniform for every class member. Therefore, because National engaged in a common course of

conduct and entered into agreements with each class member based on virtually identical documents,

we cannot say that the trial court's initial determination that the commonality requirement had been

satisfied was an abuse of discretion.

Choice of Law

The trial court made an initial determination to apply Texas law in this class action

litigation. Which state's law governs an issue is a question of law for the court to decide.

Torrington Co. v. Stutzman , 46 S.W.3d 829, 848 (Tex. 2000) (citing Hughes Wood Prods., Inc. v.

Wagner , 18 S.W.3d 202, 204 (Tex. 2000)). But determining the state contacts to be considered by

the court in making this legal determination involves a factual inquiry. Hughes , 18 S.W.3d at 204 .

Texas courts apply the Restatement's "most significant relationship" test to decide choice-of-law

issues. Torrington , 46 S.W.3d at 848 ; Restatement (Second) of Conflict of Laws §§ 6, 145, 188, 192

(1971). Section 6 of the Restatement lists the following general factors used to decide a choice-of-law question:

the needs of the interstate and international systems,

the relevant policies of the forum,

the relevant policies of other interested states and the relative interests of those

states in the determination of the particular issue,

the protection of justified expectations,

the basic policies underlying the particular field of law,

certainty, predictability and uniformity of result, and

ease in the determination and application of the law to be applied.

Restatement (Second) of Conflict of Laws § 6(2).

In addition to applying the principles enumerated in section 6, we must also refer to

sections 145 and 188 because Rowe's causes of action encompass both tort and contract claims.

Section 145 contains the following factual matters to be considered when applying these principles

to a tort case: (a) the place where the injury occurred; (b) the place where the conduct causing the

injury occurred; (c) the domicile, residence, nationality, place of incorporation and place of business

of the parties; and (d) the place where the relationship, if any, between the parties is centered. Id.

§ 145(2). Under section 188 of the Restatement, we determine contractual rights and duties by the

law of the state with the most significant relationship to the transaction and the parties. Minnesota

Mining & Mfg. Co. v. Nishika Ltd. , 953 S.W.2d 733, 735-36 (Tex. 1997); Restatement (Second) of

Conflict of Laws § 188(1). When, as here, the parties have not expressly chosen the applicable law,

we consider the following contacts in determining which law governs their controversy: (a) the place

of contracting; (b) the place of negotiation; (c) the place of performance; (d) the location of the

contract's subject matter; and (e) the parties' domicile, residence, nationality, place of incorporation,

and place of business. Restatement (Second) of Conflict of Laws § 188(2).

Although National is domiciled in Colorado, it does not maintain any offices or

employees in Colorado, and its principal place of business and administrative offices are located in

Austin, Texas. National maintains all contact with policyholders from its Austin offices, it transmits

correspondence containing the billing notices from Austin, and it receives all premium payments in

Austin. Furthermore, all of the child riders at issue in this case were designed in Texas, and all

conduct allegedly causing injury to the class members in both contract and tort occurred as a result

of National's activities in Texas. While only twenty-seven percent of the riders purchased by class

members were sold in Texas, every class member maintained direct contact with Texas in originally

purchasing the rider and paying premiums. Additionally, National's obligations of performance for

any claims made under the rider occurred in Texas. Applying these considerations to the list of

factors in sections 188 and 145 of the Restatement, the choice to use Texas law appears proper.

National attempts to overcome this strong indication that Texas law should apply by

arguing that section 192 of the Restatement requires that the law of the individual insured's state

should apply. Section 192 states:

The validity of a life insurance contract issued to the insured upon his application and

the rights created thereby are determined, in the absence of an effective choice of law

by the insured in his application, by the local law of the state where the insured was

domiciled at the time the policy was applied for, unless, with respect to the particular

issue, some other state has a more significant relationship under the principles stated

in § 6 to the transaction and the parties, in which event the local law of the other state

will be applied.

Restatement (Second) of Conflict of Laws § 192. National focuses solely on the first part of this

section. The general rule espoused by section 192 is not applicable in this case. Rather, we must

look to the exception found in this section for guidance because of the facts and surrounding

procedural concerns of this case. Because we believe that Texas "has a more significant relationship

under the principles stated in section 6" to this case, section 192's rule favoring application of the

law of the insured's state does not apply. Id.

The basic principles of section 6 favor the application of Texas law. It is reasonable

to assume that National expected Texas law to apply to its actions in contracting for, billing, and

collecting premiums for its riders. See id. § 6(2)(d) (protection of justified expectations). With a

large number of class members having purchased their riders in Texas and the action having been

filed in Texas, the ease of determination and application factor favors Texas law. See id. § 6(2)(g)

(ease in determination and application of law to be applied). In a class action such as this one, with

a single defendant located in one forum and a large number of class members scattered throughout

forty-one states, the desire for certainty, predictability, and uniformity of result weigh heavily toward

application of Texas law. See id. § 6(2)(f) (certainty, predictability, and uniformity of result).

Applying the facts of this case to the guiding principles of the "most significant relationship" test,

we conclude that the decision to apply Texas law to Rowe's claims is appropriate.

National's remaining challenge to the application of Texas law relies on Phillips

Petroleum Co. v. Shutts , 472 U.S. 797 (1985). National claims that Texas does not meet the

constitutional requirements as enunciated in Shutts . "[Texas] must have a 'significant contact or

significant aggregation of contacts' to the claims asserted by each member of the plaintiff class,

contacts 'creating state interests,' in order to ensure that the choice of [Texas] law is not arbitrary

or unfair." Id . at 821-22 (citing Allstate Ins. Co. v. Hague , 449 U.S. 302, 312-13 (1981)). The facts

of this case, as outlined above, demonstrate that Texas meets this constitutional requirement.

Furthermore, National's reliance on Shutts ignores the factual differences between

the claims of the class in Shutts and in this case. Shutts was a class action in which Kansas courts

applied Kansas law to the claims of all class members. The suit involved unpaid royalties on gas

leases. Only approximately one-quarter of one percent of the gas leases involved in the suit were

located in Kansas. The defendant was a Delaware corporation with its principal place of business

in Oklahoma. Three named representatives filed suit in Kansas on behalf of approximately 33,000

class members located in all fifty states, the District of Columbia, and certain foreign jurisdictions.

Two of the class representatives resided in Oklahoma; only the third resided in Kansas. After notice

was mailed out and the responses were received, the Kansas court certified a class of 28,100; fewer

than 1,000 of those class members lived in Kansas. The contacts with Kansas were not significant

and thus the Supreme Court declared that Kansas failed to meet the proper constitutional limitations

on a forum's ability to apply its law to the claims of every class member of a nationwide class. In

our case, Texas's contacts with both the defendant and each member of the plaintiff class rise to the

level required by the Constitution for this type of class action. We overrule National's third and

fourth issues.

Additional Issues

In its seventh issue, National contends that the trial court erred in admitting expert

testimony without undergoing a Robinson analysis. See E.I. du Pont de Nemours & Co., Inc. v.

Robinson , 923 S.W.2d 549 (Tex. 1996). It is widely accepted in our class action jurisprudence that

a trial court need not base its class certification ruling on admissible evidence. E.g. , Monsanto Co.

v. Davis , 25 S.W.3d 773, 784 (Tex. App.--Waco 2000, pet. dism'd w.o.j.); Texas Commerce Bank

v. Wood , 994 S.W.2d at 801 ; St. Louis Southwestern Ry. Co. v. Voluntary Purchasing Groups, Inc. ,

929 S.W.2d 25, 30 (Tex. App.--Texarkana 1996, no writ). Courts need not apply the same level of

evidentiary standards at a class certification hearing as would be applied at trial. Microsoft Corp.

v. Manning , 914 S.W.2d at 615 . At a certification hearing, the trial court must only have enough

material before it to determine the nature of the claims at issue. Id . If the trial court properly bases

its decision on that material, it does not abuse its discretion, even if the material offered at the

hearing ultimately fails at trial. Id. ; Dresser Indus., Inc. v. Snell , 847 S.W.2d 367, 376 (Tex.

App.--El Paso 1993, no writ).

The concerns voiced by the Texas Supreme Court in Robinson dealt largely with the

possibility that juries might give undue weight and credibility to unreliable testimony simply because

the witness was designated as an expert. See Robinson , 923 S.W.2d at 553 . Those same concerns

are not present in a class certification hearing before a trial court. In Microsoft v. Manning , the

defendant voiced an identical challenge to the production of expert testimony at the certification

hearing. 914 S.W.2d at 615 . The Microsoft trial court accepted the material offered by the expert

and, along with a great deal of other material, certified the class without any indicia of how much

weight was given to the expert's opinions. The court of appeals considered the Robinson challenge

and determined that, in accordance with the principles allowing the consideration of non-admissible

evidence at a certification hearing, the trial court did not abuse its discretion by allowing the

presentation of the expert's testimony. National's challenge in this case is nearly identical to that

raised in Microsoft . The only discernable difference is that Rowe's experts submitted affidavits

rather than live testimony. We agree with the holding in Microsoft and overrule National's seventh

issue regarding the admission of expert testimony.

In its final issue, National argues that the trial court erred in ordering National to bear

some of the costs of identifying the names and addresses of some class members for notification

purposes. The trial court ordered National to allow Rowe access to National's computer systems and

records, to cooperate with Rowe's counsel, and to compile an electronic database containing a

mailing list of the policyholders within the class. On appeal, National objects to this order and cites

American Express Travel Related Services Co. v. Walton for the proposition that the proponent of

class certification must provide notice to all class members and bear the cost of such notice. 883

S.W.2d 703, 709-10 (Tex. App.--Dallas 1994, no writ).

While National cites the general rule, the United States Supreme Court has long

recognized an exception to that rule. In instances such as these, where the defendant is able to

perform a necessary task, such as compiling a list from its internal records to be used by class

counsel in mailing the notice, with less difficulty and expense than class counsel, the trial court may

properly exercise its discretion and order the defendant to perform the task in question.

Oppenheimer Funds, Inc. v. Sanders , 437 U.S. 340, 356 (1978). Furthermore, the trial court enjoys

the discretion to decide whether the cost of performing this task should remain with the defendant

or be borne by the class. Id . at 358. The trial court has a great deal of discretion in determining who

should bear the costs of performance. Id . at 359 (if substantial, may be proper for plaintiff class to

reimburse defendant; if insubstantial, defendant can be ordered to pay; if task would be done in

ordinary course of business, regardless of substantiality, defendant may properly bear cost). In light

of the Supreme Court's holding in Oppenheimer , we believe the trial court acted within its

discretion. The trial court's order allocates to National only an insubstantial expense of compiling

an electronic database. (5) We overrule National's eighth issue.

CONCLUSION

Having reviewed the record and considered the arguments of both parties, we

conclude that the trial court did not abuse its discretion in ordering class certification. The trial

court's order is affirmed.

Mack Kidd, Justice

Before Justices Kidd, Yeakel and Patterson

Affirmed

Filed: August 8, 2002

Publish

1. The order certifying the class lists a total of thirteen different rider forms that were issued

since 1965. Those form numbers are 01-3014, 01-3014A, 01-3014R, 01-3014 (Rev. 5/89), 01-3014RM (Rev. 5/89), 01-3014R-MO, 01-3024, 01-3024A, 01-3024R, 01-3024R-MO, 01-3029R-MO, 01-3029, and 01-3029A.

2. National did offer to refund the premiums that Ella Mae Rowe has paid since her rider's

coverage has terminated, but she refused.

3. The trial court included the following language in its findings of fact and conclusions of

law on commonality:

Insurance on a child stops on the rider anniversary when the child is twenty[-five] (25) years [old] unless it stops earlier in accordance with this section.

Premiums are not due for this rider after it has stopped. If we accept a

premium after termination, it does not mean we are liable for benefits under

this rider or that we waive the termination. We will refund any premiums so

accepted.

4. The language on which National relies from Kelley is mere dicta. The court states,

"Plaintiff has merely restated the three causes of action as the common issues. If Courts were to

address the commonality issue at this level of generality, the requirement would be met every time.

Instead, a Court must look at more particular factual and legal issues." Kelley v. Galveston Autoplex ,

196 F.R.D. 471, 475 (S.D. Tex. 2000).

5. The American Express case to which National cites involved an expense of $100,000.

American Express Travel Related Servs. Co. v. Walton , 883 S.W.2d 703, 709-10 (Tex. App.--Dallas

1994, no writ). In this case, National contends that compiling the database will take approximately

45 hours. Assuming a reasonable hourly billing for performing this task, any expense borne by

National will be relatively insubstantial. Furthermore, if the expense proves more substantial than

all parties originally estimated, National may petition the trial court to require reimbursement from

Rowe.